[Saturday Ideas] How Does a Quant Practice? #idea

Lacrosse fall season started last night and I got a note from son’s mom:

Son is best player on field!

Son has worked and practiced hard over the last year, I am proud and happy for him.

I get a second note from mom:

Son signed up for wrong league, playing against kids 2 grade levels down.

Ahh  : )

But, lessons learned and all.

Then applying to markets:

What markets can we trade that are 2 grade levels down? Where is easy?

How do we define easy?

What markets trade 2 grade levels up and we should stay away from?

How do we test markets for grade level?

What other ways are there to think of grade level in the markets:

Day of month?

Day of week?

Percent move?

How does a quant practice?


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Trend Following with Mean Reversion #idea

Trend Following with Mean Reversion

Keep a list of markets that are trending (however one likes to define trending)

Use a favorite reversion strategy to buy/sell pullbacks from the trend

That way you will be trading in direction of the trend, but perhaps using a strategy with a bigger edge – because now you are trading w/ the drift



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September P&L

Strategy Performance

Risk Adjusted, Out-of-Sample

Annual: +24.9%

Max DD: -3.5%

Sharpe: 5.7

Profitable: 12 of last 12 months

12 mos performance

I am looking for a new home for this strategy. It has been traded with $40m and scales easily into the $200m range.

Inquiries and referrals appreciated. A Strategy overview is here,

Henry Carstens

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Epidemic Math #idea #ebola

Epidemic Math

Population of Liberia, Guinea and Sierra Leone is about 21,000,000

There have been 6500 Ebola cases

Reachingh 0.03% of the population

In poorest Africa

Since March 2014


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Strategy, +24.8%, -2.6% MDD, Sharpe 5.6, Looking for Home

I’m looking for a home for my quant strategy.

It has been traded with $40,000,000 over the last 7 months but needs to grow.

Out-of-sample results for last 11 months are:

 Annual return: +24.8%

Max DD: -2.6%

Sharpe: 5.6

Strategy primarily trades Bonds, Bunds, SP, Stoxx futures and is scalable to $200 million without worrying too much about execution.

An overview is here: Vertical Solutions Strategy


Henry Carstens

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A Quant’s Trading Journal #idea

A quant’s trading journal is a spreadsheet



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August P&L

Vertical Solutions Forecast

Performance thru August 2014
(out-of-sample )

  • Annualized un-leveraged return: +16.3%

  • Max intraday drawdown: -4.3%

  • Sharpe Ratio: 3.4

  • Profitable 11 of last 11 months (see Monthly Returns, below)

Total Return thru August 2014



Monthly Returns

In October of 2013 we developed some really nice Overbought/Oversold math that helps maximize expectation and minimize risk.

This math, called Edge, has led to 11 straight profitable months beginning in October of 2013.

Total Return thru August


Henry Carstens
Vertical Solutions

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What the Learners and Explorers Know #idea

What the Learners and Explorers Know

It’s all metaphors and analogies



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Old Problems New Solutions #idea

I really want to use Mathematica.

But our current solutions are fast and work.

We don’t need Mathematica for this problem.

If we want to use Mathematica, what we need is a new problem.

A problem that adds to the solution space of our current problem from a new/different perspective.

We need to build a tool chain not of redundancy but of dimensionality around the problem,


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March and Since Inception P&Ls

Vertical Solutions Forecast
P&L’s for March and Since Inception

 Quick Summary

+1.4% March

 Current rate of return: +17.5% un-leveraged

 Profitable 6 of last 6 months, profitable 9 of last 10 months

 Drawdowns continue to be minimal

 In October 2013, we developed an algorithm called Edge which has improved our results

Vertical Solutions Forecast, March 2012 – March 2014, Total Return

 March P&L


Vertical Solutions Forecast w/ Edge, October 2013 – March 2014

Gross 8.7%
Avg/mo. 1.5%
Avg/yr 17.5%
% Profitable 100%
Std Dev/mo 0.4%
z 8.82
Sharpe 3.6



Vertical Solutions Forecast, March 2012 – March 2014

Gross 16.9%
Avg/mo. 0.7%
Avg/yr 8.1%
% Profitable 76%
Std Dev/mo 1.2%
z 2.80
Sharpe 0.6



Monthly Returns, March 2012 – March 2014



Date %/Contract
Mar-12 2.1%
Apr-12 0.9%
May-12 1.7%
Jun-12 2.1%
Jul-12 -0.1%
Aug-12 0.6%
Sep-12 0.2%
Oct-12 0.9%
Nov-12 0.1%
Dec-12 0.0%
Jan-13 -0.5%
Feb-13 -0.3%
Mar-13 2.6%
Apr-13 -1.9%
May-13 -2.4%
Jun-13 1.5%
Jul-13 0.3%
Aug-13 0.7%
Sep-13 -0.3%
Oct-13 1.9%
Nov-13 1.6%
Dec-13 0.9%
Jan-14 1.0%
Feb-14 1.9%
Mar-14 1.4%



We continue to focus on using and understanding Edge

We are working on extending the time frame of trades

Results are live trades, not a simulation

*A Sharpe Ratio on 6 months results is still a bit silly


Henry Carstens

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